A total return credit swap
A)can allow an FI to maintain long-term customer lending relationships without bearing the full credit risk exposure from these relationships.
B)involves exchanging an obligation to pay interest at a specified rate for payments representing the total return on a loan of a specified amount.
C)can be important because credit risk is more likely to cause an FI to fail than either interest rate risk or FX risk.
D)All of the above.
E)Answers A and C only.

Question

Quizplus · Accepted Answer

A total return credit swap allows an FI to maintain long-term customer lending relationships without bearing the full credit risk exposure from these relationships by exchanging an obligation to pay interest at a specified rate for payments representing the total return on a loan of a specified amount. This type of swap can be important because credit risk is more likely to cause an FI to fail than either interest rate risk or FX risk. Therefore, all the statements given in the options are correct.

A Total Return Credit Swap